Best Multilateral: Inter-American Development Bank

Nov 1, 2012

Typically, multilateral lenders come to the fore in moments of
crisis and retreat from the spotlight once better times return.

But this past year, a kind of limbo has descended. No one can
argue that all is well: on any day the wrong European headline
can freeze up financial markets across the whole of Latin
America. But at the same time, many financial institutions have
become inured to global uncertainties and, armed with a belief
in the region¹s inherent stability, have pressed on
regardless.

This is the backdrop for multilateral lenders operating in
Latin America: they must be ready to intervene in case of
crisis, but also continue to find ways to facilitate the flow
of capital ­ even in markets where prospects appear more
favorable.

Over the period from the second half of 2011 to the first half
this year, the Inter-American Development Bank (IADB) has done
both. The bank, led since 2005 by Luis Alberto Moreno, had
approved $4.46 billion in the year to August 30, and has
disbursed $3.67 billion in that period.

Unsurprisingly, the IADB sees infrastructure as a key growth
area, especially as lending capabilities at many of the
region¹s commercial banks languishes at low levels.

And it has been taking the initative in financing projects: The
bank led a $430 million A/B loan for the Empresa Brasileira de
Terminais Portuários (Embraport) in Brazil in November
2011, after more than a year of structuring.

The $100 million 15-year ŒA¹ loan came directly from
the development bank.

The $330 million 12-year ŒB¹ loan portion pays Libor
plus 300bp and counted WestLB, Santander, Caixa Geral, and HSBC
as participants. A 633 million reais BNDES loan and $255
million in equity from sponsors Odebrecht Transport, Dubai Port
World, and Coimex completed the funding. The new container
terminal at Brazil¹s Santos port facility can handle 1
million teu.

The deal is a rare project financing for Brazil and the port
sector where, in both instances, more balance sheet-oriented
financings are the general rule. Embraport is the first major
greenfield port transaction in Brazil with full market risk and
the deal is notable for having closed during the depths of the
European debt crisis.

Also that month, the IDB agreed to lend Sao Paulo¹s state
government $1.15 billion to support construction of the
northern segment of the Rodoanel Mario Covas, also known as the
São Paulo ring road. The loan features a five-year grace
period and adds to $980 million coming from Brazil¹s
federal government and $890 million from the state government.

³Infrastructure is more cyclical ­ the projects take
time to develop and it depends on the political cycle to push
the projects forward,² says Jean-Marc Aboussouan, head of
the bank¹s infrastructure division.

He expects a wave of opportunities on the back of legislative
advances to public-private partnerships (PPPs) in countries
such as Mexico, Uruguay and Colombia. This should begin to
materialize in the middle of 2013.

Brazil¹s recently announced infrastructure spending also
offers a number possibilities. However, it is a trickier
environment for multilaterals, despite successes such as
Embraport and the Rodoanel. Aboussouan says the bank must work
to find its place alongside massive lending from BNDES and
other Brazilian government institutions.

The IADB is also keen to promote renewable energy; Aboussouan
says the bank has financed nearly 800MW of the 2,000MW of power
generation installed in the region.

The bank provided a $76 million equivalent peso-denominated
loan for the Macquarie Infrastructure Fund¹s Mareña
wind project in Oaxaca, Mexico, part of a $950 million total
project cost. The IADB is also identifying opportunities ­
particularly in solar and hydroelectric generation ­ in
other countries, including Uruguay and Peru.

The bank has also sought to aid the development of local
markets by supporting financial institutions. In May it
partnered Banamex with a $150 million partial credit guarantee
facility to back issuance of Mexican local debt securities.
This followed a similar facility for corporate issuance by
Leasing Operations de Mexico, in a framework agreement with Ixe
Casa de Bolsa.

Chile¹s Banco BICE and Brazil¹s BicBanco became the
first financial institutions in the region to tap an IADB
credit facility to boost lending to health and education. The
banks were lent $50 million each directly, in addition to a
syndicated portion for BicBanco.
Looking to the future, bank officials talk about the need to
get better access to different pools of liquidity.

In March, the IADB and Export-Import Bank of China announced
plans to start a $1 billion fund to invest in Latin America.
The fund is on the verge of starting operations, with $150
million contributions initially to be made by each party.

³The trend will have to be finding ways to work with
institutional investors, beyond just working with financial
institutions,² says Jozef Henriquez, the bank¹s head
of syndications. ³That¹s where the liquidity resides
right now.² Henriquez points to the recent Oaxaca II and
IV wind project bonds and the bond financing for SBM
Offshore¹s floating production, storage and offloading
vessel (FPSO) as positive developments. He says there should be
a role for bank lending alongside institutional investors and
to use the IADB¹s guarantee products to provide
enhancements.

³With Basel III coming up, all of the multilaterals active
in Latin America will have to find a way to work beyond with
just the banks,² Henriquez says.

³You have to find different pockets of liquidity.²
LF

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